Countdown to Brexit

Brexit uncertainty might be troubling the markets, but Wellesley’s head of lending John Davies is still feeling confident…

DEAL or no deal, Brexit will soon be upon us, wreaking havoc on everything from property prices to interest rates. Luckily, property lender Wellesley has been preparing for the worst-case scenario, even before the referendum was announced.

In 2015, Wellesley shifted its focus away from prime London properties and towards affordable housing – that is, homes which have been valued at £300,000 or less.

“We were probably a bit ahead of the crowd in that sense,” says Wellesley’s head of lending John Davies. “We were lucky because we didn’t know which way the vote was going to go, but we’d already started diversifying our properties into the regions and away from the high-value properties of central London.

“It was a purely commercial decision, as we felt that the market was getting a bit overheated, and sales of those £1m+ properties were slowing down. We didn’t pull out of the market entirely, but we started looking outside of London to areas such as Manchester, Birmingham, Bristol and Gloucester.”

Two years ago, the average unit value of a Wellesley property was around £1m, but today the average value is less than £300,000. Furthermore, the company takes a conservative approach to its loan-to-value (LTV) ratios, which means that the value of the UK’s property market would have to fall to a historic low before investors’ money is at risk.

Earlier this year, Bank of England Governor Mark Carney predicted that UK property prices could plunge by as much as a third in the ‘worst case scenario’ Brexit outcome. Davies agrees that the economic impact of a bad deal – or no deal – could be severe.

“If there were to be a severe recession, that would obviously impact on the availability of affordable housing, increased debt, potential inflation because of a devaluation of the pound, and of course higher interest rates,” says Davies. “But in my view a lot of this has been priced in by the markets already. We’ve already seen the heat from inflation and the pound has lost around 20 per cent of its value since the EU referendum.”

As a result, Davies says, he expects to see a “minor adjustment” to the UK’s property market, rather than a full-scale catastrophe.

But even in the event of a worst-case scenario, Wellesley is prepared. The platform has a history of attracting sophisticated investors who are familiar with the risks inherent in the UK property market, and they trust Wellesley to work with experienced borrowers on highly vetted property developments.

This puts Wellesley in the enviable position of being ready for Brexit, whatever that may be.

“We are aware of Brexit but we are not particularly concerned about Brexit for our own chosen sector of the market,” says Davies. “The demand is there and is probably not going to go away because of Brexit.”